Oil traders’ profit margins, WTO could be deregulated – Journal

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ISLAMABAD: The government is considering a complete deregulation of the profit margins of oil traders and oil marketing companies (OMCs) with higher caps and an initial increase of 15-20%.

This is based on advice from the state-owned Pakistan Institute for Development Economics (Pide), but a final decision should be made by the Cabinet Committee on Energy (CCOE) or the Economic Coordination Committee. (ECC) from Cabinet next week.

WTO and oil traders have sought to increase their sales and distribution margins by around 50% due to rising costs of doing business and inflation.

Dealers had threatened to go on strike across the country from November 5 to protest the government’s slowness to increase their margins. On November 3, they withdrew their protest strike call after a government team led by Energy Minister Hammad Azhar agreed to increase its margins on the sale of petroleum products by 6% within days. The meeting also formed a committee chaired by Petroleum Secretary Dr Arshad Mahmood and comprising stakeholders to ensure the implementation of the agreement to increase margins through the approvals of the ECC and the Federal Cabinet. before November 15th. The government team also included the chairman of the Oil and Gas Regulatory Authority (Ogra) and the general manager of petroleum.

Dealers announced on November 3 that they were canceling their protest but would go on strike from November 20 if the agreed increase in margins was not notified.

Informed sources said that an increase of around 15 to 20 percent in OMC dealer and commission margins was finalized in a summary to cabinet committees. The summary had proposed to increase the dealer commission by approximately 85 paisa and 60 paisa per liter on gasoline and diesel respectively and approximately 60 paisa per liter increase for gasoline and diesel for OMCs. . Currently, MOCs are entitled to a commission of Rs 2.97 per liter on both products and dealers receive Rs 3.90 and Rs 3.30 per liter on gasoline and diesel, respectively.

The abstract was withheld at the last moment upon receipt of an independent study submitted by Pide. The study proposed a deregulation of margins for dealers and MOCs with a cap of around Rs 4 and Rs 4.50 per liter, respectively, or as a percentage of the selling price of petroleum products, starting with the same range of ‘impact.

Pide said the best option would be full deregulation for which the current market situation is most appropriate because various cost elements are fixed and enough players are in the market for fair competition. At the same time, Pide also called for the facilitation of a new category of oil traders alongside two existing categories for competition, but did not suggest whether the regulatory environment was conducive. Currently, backwater pumps fall into two categories: “company owned and operated” and “company owned, concessionaire operated”. The new category is expected to be “dealer owned, dealer operated” modeled on the United States and the Philippines.

He said the country has 66 WTO licenses and 34 of them are actively operating in the market – an ideal situation for competition. In addition, there were around 10,000 oil pumps, a third of which was owned by the state-owned Pakistan State Oil, which can play the role of price leader with an overall market share of nearly 50 percent.

Since the ex-refinery or import parity price was well known, as well as federal excise, customs duties, domestic freight equalization margin, petroleum tax, and sales tax, the margins for MOCs and dealers could be determined by Ogra in the event that they exceed the upper cap. .

It also offered another option of partial deregulation with a cap on margins either by merging the margins of both concessionaires and CMOs, or without merging. The upper ceiling could take the form of a fixed margin or up to 13 pc of the total capital employed to organize the supply of products, which represents 6.5 pc to 7 pc of the selling price of petroleum products. At this rate, the margins per liter ranged between Rs 7-8 per liter for dealers and JIs on both products. It also involved the cost of maintaining mandatory stocks.

Posted in Dawn, November 20, 2021

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